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Brussels has begun to circulate the first confidential papers on how to plug the gaping hole in EU finances after Brexit, provoking serious alarm in regions and poorer countries across the bloc.

British withdrawal will slash EU revenues by 16pc once the current budget framework ends in 2020, forcing the Brussels to confront vocal vested interests. It threatens to ignite bitter divisions.

Draft documents from the European Commission map out three scenarios for the regions, including a drastic suspension of all aid to backward areas in the majority of countries. Payments would be confined to ‘cohesion’ funds for countries with per capita income below 90pc of the EU average, essentially Eastern...